DFDS agreement reveals performance-related fee and inflation-capped fares

THE government’s deal with DFDS has been published – which reveals that the fee the ferry operator must pay for its exclusivity is performance related, mean average fares are capped, and prices can only go up by inflation, except under exceptional circumstances.

Ministers hope that publishing the ‘concession agreement’ signed with the Danish line last January will alleviate pressure from some passengers and retailers, who say that fares and charges have gone up since March, when DFDS took over from Condor.

Recently, Sandpiper CI Chief Executive Officer Tony O’Neill argued that a new ‘flat-rate’ freight charging structure had hiked prices for consumers.

The retailer said his own company’s freight costs had risen by 5.8% since the new regime was introduced in the spring.

The recently published agreement contains a number of obligations that were not in the government’s previous arrangement with Condor, including granting DFDS exclusive access to the Elizabeth Harbour ramps, a commitment to introduce three new ships by the end of 2031, the updated fee structure, maximum fares, and agreed staffing arrangements.

Mr O’Neill was also critical of extra port dues charged retrospectively by DFDS after an initial administrative oversight. It is understood that this charge – levied by all ports – was included in Condor’s freight bills but was a separate charge on DFDS invoices.

However, DFDS have now agreed not to pass on one the charges, which is based on a per-unit basis.

Commenting on the concession agreement, Economic Development Minister Kirsten Morel said: “Publishing this agreement in the way that we had published the last one [with Condor] is the right thing to do.

“It shows the transparency that perhaps you don’t see elsewhere. From that perspective, I think Islanders will, at the very least, be able to make a comparison and see that the new concession agreement is far better than the last one.”

He added: “What we have now is a safe and investable ferry service, because it became really clear with the previous incumbent that it was not investable.

“We’ve also got to remember that we gave the previous operator two bites of the cherry for free, where they provided us with two different proposals but neither of them had fleet investment as part of them.

“The new concession agreement is far more expansive, covers far more areas and has real teeth. It became very clear throughout the history of the last operating agreement, there was no ability for government to hold the ferry operator to account in any way, shape or form. There was only public pressure.

“This agreement can guide us in many different ways, and we’ve already seen it help with our conversations with DFDS.”

Reacting the published agreement, Lee Madden, president of the Jersey Chamber of Commerce, said: “Chamber has long been requesting clarity on the operating agreement that underpins our ferry services.

“While the fuller detail of the 132 pages will require closer examination, we are pleased that our calls for better understanding of what is required of the ferry operator have been met.

“We hope that this agreement will provide great confidence for all concerned, and that we can now turn a corner towards an essential service that enhances the commerce of the island.

“Chamber will continue to review the agreement in detail and engage with both the Government of Jersey and DFDS to ensure that the commitments made within the concession deliver the reliability, resilience and value that islanders and businesses depend upon.

“Chamber also understands from engagement with its members that there has now been a reversal of the decision to apply extra freight charges.

Chamber CEO Murray Norton added: “In late July, Chamber became aware of additional charges being applied alongside the newly introduced flat-rate freight pricing.

“These charges would have added £135.38 to each trailer of freight and several million pounds to the annual cost of freight. It was also planned that the ferry operator would retrospectively apply these additional port dues charges to customers.

“Chamber raised these concerns, received from many affected businesses, with the Government of Jersey, who were previously unaware of the issue.”

“Following a joint review of the port charging framework, Chamber now understands that DFDS will limit the application of port dues to a per-tonne basis only and will not pass on the per-unit charges previously communicated. In line with this clarification, DFDS will remove the per-unit charge from freight invoices with immediate effect.

“Chamber is certain that all freight customers will be relieved to hear this news and, given the wider economic pressures, welcomes the sensible course of action that has resulted from these discussions. It remains to be seen what the implications of this decision may be for the planned schedule of fleet investment.”

Asked if he accepted that the new arrangement had pushed up prices, as Mr O’Neill has stated, Deputy Morel replied: “No and yes, and the reason I say that is because, firstly, we had no transparency over previous pricing, so the retailers can say what they want, and we have no way of pushing back.

“But secondly – and this is fundamental – by demanding discounts out of the single ferry operator, whoever that ferry operator is, they put pressure on the ferry operator to be a safe ferry service and to be an investable ferry service.

“And we saw that come to pass with Condor. They weren’t operating, it seems, safely, and they weren’t operating in a way that meant they could invest in new vessels.

“The ferry service is not the place to compete on cost; where you need to compete on cost is at the freight forwarders level.

“That’s should be a highly competitive market with different businesses doing different things. But what instead we’ve seen was an almost monopoly created in the freight forwarders area, while cost pressures were being pushed down onto the ferry service diminishing the ferry service.

“Jersey can’t afford not to have a ferry service but it can afford to have change in freight forwarders. If any one freight forwarder disappears, other freight forwarders will step in Jersey.

“We need to protect the ferry service, and if that means a slight increase in prices, I say that that is worth paying for. The certainty is that we’ve got a safe and investable ferry service. What we cannot do is protect freight forwarders, where we should be having competition.”

What the agreement says

Exclusivity

Under the old agreement, Condor did not have exclusivity, although other entrants had to overcome the high bar of matching the incumbent’s operation. This new deal gives DFDS exclusive rights to the Elizabeth Marina ramps for passenger, vehicle and freight ‘Roll On, Roll Off’ services, called ‘RoPax’ in the port vernacular.

Inter-island travel

Sailings to and from Guernsey are not covered in the agreement; however, the Government’s Sea Transport Policy allows the Harbourmaster to issue further ramp licences to other RoPax ferry operators for sailings between Jersey and Guernsey only.

Termination of agreement

Jersey may terminate the agreement for various reasons, including: a material breach with cannot be or is not remedied; failure to meet its key performance indicators, failure to pay its ‘concession fee’ and breaching its exclusivity status.

If the agreement is terminated, the government has the option to by any vessel owned by DFDS bought as part of its investment plan at market value.

Route guarantees

DFDS are obliged to sail a minimum of 11 rotations a week to and from the UK in peak months and five at off-peak times; and 11 high-speed sailings to and from France in peak season and four during the off-peak season.

Fares

Maximum fares on the northern route for the first year of operation include £345 for a standard car up to 1.85m high with two adults and a child; £58 for an adult foot passenger, and £391 for a motorhome. On the southern route, fares are capped at £247, £52 and £288 for the same examples.

DFDS must also provide the government with the mean average fare for each fare category, although these have been redacted in the agreement. This was not a requirement under the previous operating agreement and was introduced so that consumer pricing experiences “can be more accurately tracked”.

Fare increases after the first year will be in line with the ‘base line inflation level’.

The agreement does give DFDS certain rights to raise fares outside of the agreed framework if they are not making an adequate ‘Return on Invested Capital’. However, these circumstances – and the processes by which ROIC is calculated – are outlined in detail and would only be viewed as “extenuating”.

Tickets

DFDS will introduce “multi-trip ticket options” that offer flat prices for frequent travellers. It will also promote “short-break packages” that will include ferry travel, accommodation and itineraries in France or the UK.

It will also offer “tailored travel packages” to daytrip passengers and coach groups.

DFDS has also introduced a 15% discount for early purchases of tickets by Island residents, which will be replaced by a DFDS-wide loyalty programme, which will be introduced at the end of next year.

Staff

DFDS will focus on “directly employed” staff on vessels it owns. Freight and passenger sales and marketing will have local representation, and DFDS will prioritise employing islanders.

Investment

DFDS will make a 297.5m euro investment in new ships, including an 85-100m fast ferry capable of carrying 900 – 1,100 people and 200-300 cars by the end of 2028. It will also introduce two RoRo ships of between 130-140m by the end of 2031.

Performance standards

Under the old agreement, Condor paid a fixed annual fee for its de facto exclusivity but DFDS will pay a ‘concession fee’ which can be reduced, potentially to zero, though “compliant delivery of Key Performance Indicators”. The fee is designed to “incentivise good performance”.

DFDS’s bankers will also guarantee a ‘Performance Bond’ which the government can draw down on should the operator’s performance “consistently fall short of agreed expectations”. This money – not specified in the agreement but described as “significantly larger” than the concession fee in accompanying notes – allows the government to recover its costs if it needs to step in.

Bad weather is described as a ‘relief event’ and does not impact KPIs; however, it must still meet agreed standards of customer care.

Freight charges

The rate will be charged based on pound-per-lane-metre with a reduced rate for “construction materials meant for use in major construction projects in Jersey”. For the first year, it will be £56-per-lane-metre for units longer than 8m and £61 for units under 8m.

In following years, the rate will increase in line with the ‘base line inflation level’.